Phenotypic variation is common in most pathogens, yet the mechanisms that maintain this diversity are still poorly understood. We asked whether continuous host variation in susceptibility helps maintain phenotypic variation, using experiments conducted with a baculovirus that infects gypsy moth (Lymantria dispar) larvae. We found that an empirically observed tradeoff between mean transmission rate and variation in transmission, which results from host heterogeneity, promotes long-term coexistence of two pathogen types in simulations of a population model. This tradeoff introduces an alternative strategy for the pathogen: a low-transmission, low-variability type can coexist with the high-transmission type favoured by classical non-heterogeneity models. In addition, this tradeoff can help explain the extensive phenotypic variation we observed in field-collected pathogen isolates, in traits affecting virus fitness including transmission and environmental persistence. Similar heterogeneity tradeoffs might be a general mechanism promoting phenotypic variation in any pathogen for which hosts vary continuously in susceptibility.